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ABC Analysis: Benefits and Limitations

This document discusses ABC analysis, an inventory management technique that categorizes inventory items into A, B, and C classes based on their value to the business. Class A items have the highest value, while Class C items have the lowest value. The document provides information on how ABC analysis relates to the Pareto principle, how it is calculated by multiplying annual sales by cost, and how it simplifies work for inventory managers by focusing on high-value Class A items first. Benefits and disadvantages of ABC analysis are also summarized.

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Anshula Kolhe
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17 views8 pages

ABC Analysis: Benefits and Limitations

This document discusses ABC analysis, an inventory management technique that categorizes inventory items into A, B, and C classes based on their value to the business. Class A items have the highest value, while Class C items have the lowest value. The document provides information on how ABC analysis relates to the Pareto principle, how it is calculated by multiplying annual sales by cost, and how it simplifies work for inventory managers by focusing on high-value Class A items first. Benefits and disadvantages of ABC analysis are also summarized.

Uploaded by

Anshula Kolhe
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Topic : ABC Analysis

Members:

1. Nishad Bathia (Roll No.02 MFM)


2. Vikas Govalkar (Roll No. 09 MFM)
3. Deepika Khinchi (Roll No.17 MFM)
[Link] Patil (Roll No. 24 MFM)
[Link] Nishad ( Roll No. 03 HRDM)
[Link] Bobale (Roll No. 11 HRDM)
What is ABC Analysis ?
ABC analysis is an inventory management technique
that determines the value of inventory items based on
their importance to the business.

ABC analysis divides an inventory into three


categories:
How ABC Analysis Relates to
the Pareto Principle
 
How is ABC Inventory
Analysis Calculated?

Conduct ABC inventory analysis by


multiplying the annual sales of a
certain item by its cost. The results
tell you which goods are high
priority and which yield a low
profit, so you know where to focus
human and capital resources.
Use this formula for ABC inventory
analysis:
 
(Annual number of items
sold) x (Cost per item) = (Annual
usage value per product)
 
How is ABC
Inventory
Analysis
Calculated?
How ABC  Inventory managers will use ABC analysis to check the purchase
Analysis orders of the highest value (Class A items) products first, since
these generate the most revenue.
Simplifies  Using ABC analysis for inventory helps better control working
Work for capital costs. The information gained from the analysis reduces
obsolete inventory and can boost the inventory turnover rate, or
Inventory how often a business has to replace items after selling through
them.
Managers
 Increased Inventory Optimization: 
 Improved Inventory Forecasting: 
 Better Pricing:
ABC Analysis  Informed supplier negotiations:
Benefits  Strategic Resource Allocation:
 Better Customer Service:
 Better Product life cycle management:
 Proper standardization & codification of inventory items needed.
Disadvantages  Considers only money value of items & neglects the importance of
items for the production process or assembly or functioning.
of ABC  Periodic review becomes difficult if only ABC analysis is recalled.
Analysis When other important factors make it obligatory to concentrate on
"C" items more, the purpose of ABC analysis is defeated.

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